The Consumer Financial “Protection” Bureau steps into the fray

posted at 11:21 am on January 11, 2013 by Erika Johnsen

Just to clarify, “protection,” in the Obama-administration context, is hereafter joining my list of words that deserve to be indelibly surrounded by quotation marks (re: “investments”).

The Consumer Financial “Protection” Bureau is all set to hit the ground running with bright-eyed regulatory gusto in 2013, now that they have finally worked through some of the studies and rules required by the 2010 Dodd-Frank financial overhaul, although many businesses and lawmakers have been worrying that the CFPB has afforded itself way too much unchecked authority to simply issue rules that strike the administration’s big-government fancy without proper congressional or judicial oversight (yet another grand idea born from the auspices of The Most Transparent Administration, Evah). This week, the CFPB released mortgage standards ostensibly meant to quell the type of risky lending that caused the housing-market collapse:

Today, we’re issuing one of our most important rules to date, the Ability-to-Repay rule. It’s designed to assure the reliability of mortgages – making sure that lenders offer mortgages that consumers can actually afford to pay back. This is a simple, obvious principle that needs to be cemented in the housing market.

In the run-up to the financial crisis, we had a housing market that was reckless about lending money. Lenders thought they could make money on a loan even if the consumer could not pay back that loan, either by banking on rising housing prices or by off-loading the mortgage into the secondary market. This encouraged broad indifference to the ability of many consumers to repay loans, which dramatically increased mortgage delinquencies and rates of foreclosures. …

Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial incentives – that both of them win when borrowers can afford their loans. With this confidence, consumers can be active participants in the market and choose which of a wide variety of products they believe is best for them.

Hmm — completely rewrite history, much? By all means, let’s simply gloss over the fact that the federal government’s policies largely and directly incentivized financial institutions to engage in the type of behavior they did in the lead-up to the financial crisis, by just piling on more unchecked federal intrusion. Yes, financial institutions are certainly capable of acting like sharks — but who is it that has relentlessly abetted such shark-like behavior?

No matter what it is the munificent federal government claims to be “protecting” us from, I find the noblesse oblige of these moral-political busybodies much more terrifying than the private-sector profit motive. We’ll see how this plays out:

Bankers and consumer advocates called the Consumer Financial Protection Bureau’s new rules on mortgages a good start but each leveled criticisms of the new regulations at a hearing in Baltimore on Thursday.

Banking industry representatives and credit union officials each said they are concerned that new regulations from the CFPB could hamper their ability to make more home loans. Consumer groups, on the other hand, said the rules don’t go far enough in protecting consumers from being steered into mortgages they can’t afford.

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